Ubiquity Credits (uCR)

In a debt cycle, the uAD protocol shall issue 'perpetual, depreciating premium' coupons.

• These coupons shall be issued at a premium that depreciates over time in the course of the debt cycle. For example, the coupons may be issued at a 30% premium at the very beginning of the debt cycle, and this premium shall depreciate over the course of the debt cycle.
• These coupons are 'perpetual' since they never expire like uCR NFT coupons. However, the coupons to uAD redemption ratio shall worsen over time, unlike uCR NFTs, which can be redeemed for uAD at a guaranteed ratio of 1:1, as long as they are unexpired.

The purpose of these coupons is to incentivize the purchase of debt right from the beginning of the debt cycle when the premium for uCR NFT isn't high enough for uAD holders to make a substantial profit.

This may especially be handy when the price of uAD attains substantial stability around the $1 peg, and the possible arbitrage return on buying uCR NFTs at a low premium decreases.

This is an extension of the base debt redemption mechanics.

https://lh5.googleusercontent.com/8o3qeUhj2KnrQfk9SnonoCmHvzwhi5tXe79YNwVAes1-330Qp1IFNynHiH3__nicOet5dxTnIoS1m3MgrZ_A_Xue2tg5_xb-RCwxFuz3R6gxttoQV0GWbFahyxyPAAmHIYySuYpK

To ensure enough supply contraction of uAD in a debt cycle, we want what the labels and explanations in the diagram describe (1, 2, and 3). We want to place an incentive for participants

1. To burn uAD as early in the debt cycle as possible.
2. To continue to burn uAD even as the uAD price continues to decrease up to its minima.
3. To continue to burn uAD up until TWAP = 1

The debt mechanism being proposed aims to provide sufficient incentive for 1,2, and 3, all with the aim of preventing prolonged debt cycles.

Two debt tokens : uCR NFT (i.e., debt coupons) and uCR (i.e., ‘auto redeem’ tokens)

In a debt cycle, a participant (i.e., uAD holder) can burn uAD in two ways. He can burn uAD in exchange for uCR NFT or he can burn uAD in exchange for uCR.

uAR

In a debt cycle, a participant can burn uAD tokens in exchange for uCR i.e. ‘auto redeem’ tokens. uAR can be exchanged 1:1 for uAD tokens in an upcoming inflation cycle (price of uAD above 1.00)

Minting of uCR

uCR tokens are minted to the participant burning x amount of uAD according to the formula:

$$ x \times (\frac{Blockheight_{debt}}{Blockheight_{burn}})^p $$